Question
Skynet Company has computerized equipment that was state-of-the-art at the time of its purchase on 1/1/2016. It's been in use since then, but recently
Skynet Company has computerized equipment that was state-of-the-art at the time of its purchase on 1/1/2016. It's been in use since then, but recently a new model of equipment has revolutionized the production of automated security products like those made by Skynet. This has made the value of Skynet's existing equipment decline in value. Skynet had purchased the equipment for $15 million five years ago, and has depreciated $10 million of this cost by 12/31/2022. Management of the company estimated the fair value of the existing equipment at $2 million and the cash flows recoverable from use of the equipment at $5.2 million as of 12/31/2022. Should the company record an impairment loss on this equipment? If so, compute the amount of the loss. If not, explain why not.
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